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By Bruce Buchanan
On July 6, 2015, the Securities and Exchange Commission (SEC) charged Luca International Group, LLC, a San Francisco Bay area oil-and-gas company and its CEO with running a $68 million Ponzi-like scheme, and an affinity fraud scheme concerning EB-5 Visas that targeted the Chinese-American community in California and investors in Asia
The SEC alleges that Bingqing Yang knew that Luca International was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil-and-gas operation, with millions of barrels of oil reserves and billions of cubic feet in gas reserves. Yang falsely projected outsized investment returns ranging from 20 to 30 percent annually. She allegedly commingled investor funds to prevent the scheme from collapsing, and used money from new investors to make sham profit payments to earlier investors. Yang also allegedly diverted $2.4 million in investor funds through her brother's company in Hong Kong purportedly for the purchase of an oil rig, but instead used it to purchase a 5,600-square-foot home in an exclusive gated community in Fremont, Calif. In addition, Yang allegedly spent investor funds on pool and gardening services, personal taxes, and a family vacation to Hawaii.
According to the SEC's complaint filed in federal court in San Francisco, Luca International conducted seminars for investors at the company's offices and hotel conference rooms in California. Besides targeting investors in the Chinese-American community through advertisements in Chinese-language television, radio, and newspaper outlets, Yang and Luca International allegedly zeroed in on Chinese citizens who sought permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements. Yang is alleged to have raised approximately $8 million from EB-5 investors purportedly to finance, through a loan to another Luca entity, jobs and development costs for eight oil-and-gas drilling projects. Yang allegedly told these investors that loan was fully secured, but the Luca entity the EB-5 investors funded was hopelessly in debt and contrary to the rosy representations Yang made to investors, had no realistic possibility of ever repaying the loan.